Sporting tournaments are not only about admiring athletes but also about manifesting patriotism, and when it comes to this there are few countries as keen on flag-waving as the US. Yet it was revealed recently that the kit to be worn by the country's athletes competing in the 2012 Olympic Games was made in China, a humiliation for the country's manufacturing industry, which is currently struggling to stage a resurgence.
Manufacturing in the US has been in steady decline since the 1980s. According to estimates by global management firm Booz & Co, the number of manufacturing jobs in the country has decreased on average by 4.3% annually between 2000 and 2010. Relocating production to countries offering cheaper labour and less (if any) obligations to unions became a solution for many US companies struggling to keep their prices low and stay competitive in the increasingly global marketplace. The biggest recipient of offshoring projects, China, also offered companies access to a new market of more than 1 billion potential new customers.
A numbers game
However, with the cost of labour growing, the renminbi strengthening and the high price of oil making transport increasingly expensive, China is starting to lose its appeal. "We see more and more companies moving back to the US and we hope such [a trend] continues,” says Kim Guadagno, New Jersey’s lieutenant governor. J Keith Crisco, North Carolina’s secretary of commerce, has witnessed similar movements. "It is a national trend," he says.
According to a study by the Boston Consulting Group, between 2 million and 3 million jobs will be created as a consequence of reshoring over the next decade. Of those jobs it is estimated that between 600,000 and 1 million will be in direct manufacturing. The same study predicts that labour costs in China will rise at a rate of 18% per year until 2015.
It is also expected that other sectors, such as shared services, will see jobs reshored to the US. But customers calling help lines will still be more likely to book their flights or fix problems with their broadband via Bangalore, rather than Boston. "In [the] case of cost-generating back-office operations, such as customer call centres, moving operations [back to the US] makes little sense," says Edward Calvesbert Julia, undersecretary at the Department of Economic Development and Trade in Puerto Rico. "We are increasingly competitive, however, when it comes to profit generating operations and we see more and more interest from investors in that regard.”
Quality issues are often cited as a key reason for reshoring manufacturing. But while the issue of quality has also been raised with regards to call centres, the quality of call-centre service is not considered to have a significant enough impact on a customer's spending with a company to make the reshoring of these services economical.
Coming or going?
In recent months, as well as a number of small, niche goods manufacturers, international names including General Electric and machinery and engine manufacturer Caterpillar have boosted the capacity of their US-based manufacturing operations. Such moves have been encouraged and even endorsed by US president Barack Obama, who has pledged to revitalise US manufacturing. The president believes that boosting the sector will not only strengthen and diversify the country's economy, but also create jobs, helping to lower the country's problematically high unemployment rate.
But it is two-way traffic at best, and for every company reshoring its manufacturing there is another offshoring. For instance, consumer products conglomerate Honeywell is planning to move manufacturing of its stainless steel goods from the US state of Massachusetts to the Chinese city of Nanjing, while medical manufacturer Boston Scientific has already relocated from the US state of Florida to Costa Rica, leaving more than 1000 people without work.
"After so many years of losing jobs to China, the fact that [as many companies are reshoring as offshoring] can still be seen as a victory,” says Harry C Moser, founder of the Reshoring Initiative, a group of companies and trade associations formed with the aim of bringing jobs back to the US. Mr Moser, one of the most audible advocates of the reshoring trend and a man with more than four decades of experience working in manufacturing, claims that over the past couple of years, businesses have learnt to look at the larger picture when making investment decisions.
"At the beginning of the offshoring trend, investors were looking almost exclusively at the production cost. Now, they increasingly focus on the total cost of ownership [TCO], including transport and time,” he says. For that reason, Reshoring Initiative's website offers what it calls an estimator – a tool that shows total operating costs in different locations, based on 29 cost factors. In response, the US Department of Commerce has announced that it is working on a website devoted to reshoring and TCO, while Select USA, a federal investment promotion agency, is directing its website visitors to Mr Moser’s cost estimator.
Elsewhere in the Americas
US agencies are not the only ones hoping to benefit from the trend among US companies moving their manufacturing divisions nearer to home. “The cost of manufacturing here may be higher than in China, but it is certainly lower than in the US,” says Dr McChesney Emanuel, chairman of the board at the Antigua and Barbuda Investment Authority and former consulate-general in New York.
“We offer what investors could not expect in China: stability and predictability of laws and regulations. And we have done a lot to improve the efficiency of our customs and the capacity of ports,” says Mr Emanuel.
While Antigua and Barbuda is yet to receive a manufacturing project from a company moving nearer to its US base, another competitor for such projects, Mexico, has had more success. At the end of 2010, garden equipment manufacturer Meco Corporation moved its production to Saltillo in north-east Mexico.
And more projects should follow soon, according to Manuel Sandoval Rios, executive director of prospective analysis and innovation at ProMexico, a governmental entity responsible for promoting trade and investments. “We established ourselves as a good destination for manufacturing. And apart from production for exports, products can be sold locally, especially given that Mexico has a population of more than 100 million people and a quickly growing middle class,” he says.
Manufacturing in the US might not be the booming industry that Mr Obama hopes will revive the country's economy, but it is certainly in better health than it was a decade ago. Time will tell whether it can withstand competition from its neighbours and continue attracting operations moving back from China. But one thing is for sure: the US Olympic Committee has made a pledge that during the 2014 Winter Olympics, the country's athletes will be wearing clothes made in the US.